Ford is cutting back on sedans to build more SUVs - and it could mean a boom for its business
- Ford announced that it's reducing its commitment to passenger cars.
- For over a year, the auto industry has been grappling with a market shift toward pickup trucks and SUVs.
- Ford hasn't followed Fiat Chrysler Automobiles in deciding that passenger cars are all-but dead in the US market.
Fiat Chrysler Automobiles CEO Sergio Marchionne, who is retiring in 2019, got there first: he saw that passenger cars weren't selling in the US, so he shifted the carmaker's production to more profitable, more in-demand pickup trucks and SUVs.
About a year ago, he was clear: the market is undergoing a structural shift.
Now Ford - struggling with a lagging stock price, under the leadership of new CEO Jim Hackett, and working to catch up to the perception that General Motors and Tesla are ahead on electric cars and autonomous vehicles - has followed suit. Sort of.
At the Deutsche Bank Global Auto Industry Conference in Detroit on Tuesday, Ford said that it was dialing back on cars, but not abandoning them.
The automaker "will shift toward a lower volume passenger car lineup in North America and Europe, while competing in more profitable sub-segments of the utilities market, as demonstrated by vehicles such as the new Edge ST and the upcoming Bronco," Ford said in a statement.
Ford said that over the next couple of years it will increase its SUV mix 10 percentage points and decrease its car portfolio 10 percentage points in North American.
No massive shift
That's not a massive, FCA-like concession that cars are over.
But it is more extreme than what, for example, General Motors is contemplating. In an interview with Business Insider at the Detroit auto show, GM's North American boss, Alan Batey, stressed that passenger cars will still be an important component of the automaker's business when asked about vehicles such as the Chevy Malibu.
Marchionne, in a press conference with reporters at the show, showed no signs of regret about FCA's decision. In fact, he said that FCA is now planning to look at developing a mid-size pickup truck to go up against the new Ford Ranger and the Chevy Colorado.
He also noted that while he expects the shift from cars to trucks to be permanent, the Japanese and South Korean automakers in the US might not be able to be as aggressive as their American counterparts because they've committed too much of their infrastructure to their highly regarded sedans, such as the Toyota Camry and the Honda Accord.
And FCA isn't entirely jettisoning cars - Marchionne said that the automaker could stay the course with some of its niche Dodge-brand muscle cars.
Ford has been in this position before. Prior to the financial crisis, its passenger-car lineup wasn't as strong as its traditionally hot-selling pickups and its SUVs. The company had always been relatively well established with small cars, thanks to its European operations, but it was adrift with larger sedans.
That changed, and vehicles such as the Fusion were well-received.
The SUV boom can't be ignored
But over the past three booming sales years, it's been obvious that SUVs are what Americans want to drive. Newer models can deliver good fuel economy and greater versatility than four-doors, so consumers aren't being asked to make any trade-offs.
Ford's formal commitment to spending less on cars and more on trucks might be seen as an admission of failure, but that would be wrong. The last thing the automaker wants is to be stuck with a capacity mismatch: not enough factories building SUVs while others continue to crank out cars. The political situation with the Trump administration has also made it difficult for Ford to move car production out of US.
Ford has always been a big truck company, and it pioneered some of the original SUVs, such as the Explorer, so it makes sense for the company to follow FCA and move in this direction. The larger question for the industry is whether other automakers will now follow Ford.